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Please see email I received from Jackie Speier’s office. It appears there is movement on the 1099 issue. I would like your comments on the tax implications. Seems like most would not affect small business except for filings.

Small Business California and the National Small Business Association have been very vocal on this issue.

Scott and Brian, wanted to let you know that the House is taking up a bill on the floor today that was just introduced today—HR 5982 the Small Business Tax Relief Act—that will repeal the 1099 provision in the healthcare bill. You should also know that its $19 billion cost (revenue that would have been raised over 10 years) is being paid for through a variety of other tax measures.

“This bill repeals a provision in the health care overhaul law (PL 111-148) that requires small businesses to file a 1099 form to the IRS for payments of more than $600 that they make to any vendor during a tax year. To offset the estimated $19.2 billion cost of this provision, the bill makes changes to foreign tax rules, requires a minimum term before certain trusts could make gifts with minimal tax consequences, and makes tall crude oil ineligible for the biofuel producer tax credit”.

Jackie was unable to sign on as a co-sponsor because of the speed with which this was introduced and taken up, but she will support it.

FLOOR SITUATION

The House is scheduled to consider H.R. 5982 on Thursday, July 29, 2010, under suspension of the rules, requiring a two-thirds majority vote for passage. This legislation was introduced by Rep. Tim Murphy (D-NY).

EXECUTIVE SUMMARY

H.R. 5982 would repeal the business (1099) filing requirements under ObamaCare. Offsets to this bill include $149 million in tax increases.

Note: This bill is in response to the Republican MTR for H.R. 5893, Investing in American Jobs and Closing Tax Loopholes Act that was pulled from the floor as a result of the MTR.

Title I: Repeal of Certain Information Reporting RequirementsThe bill repeals section 9006 of the Patient Protection and Affordable Care Act. As a result businesses, starting in 2012, will be required to file information returns (1099 tax form) with respect to any person (including corporations) that receive $600 or more from the business in exchange for property or merchandise. Corporations would also have to file information returns when they receive $600 or more in exchange for services or other determinable gains. According to JCT, this provision will cost $19.206 billion over ten years.

Title II: Revenue ProvisionsRules to Prevent Splitting Foreign Tax Credits from the Income to Which They Relate:

This provision would implement a matching rule that suspends the recognition of foreign tax credits until the related foreign income is taken into account for taxing purposes in the U.S. This provision would apply to all split foreign taxes claimed by taxpayers after the date of introduction. According to JCT, this provision would increase revenues by $4.250 billion over ten years.

Denial of Foreign Tax Credit with Respect to Foreign Income Not Subject to U.S. Taxation by Reason of Covered Asset Acquisition:

This provision would prohibit taxpayers from claiming the foreign tax credit with regard to foreign income that is never subject to U.S. taxation because of a covered asset acquisition. The legislation would apply to related party transactions occurring after the date of introduction. According to JCT, this provision would increase revenues by $3.645 billion over ten years.

The legislation abides by the treaty commitment to treating income as a foreign source, but segregates the income so that it is not the basis for claiming foreign tax credits that have nothing to do with double taxation. The bill would conform the foreign tax credit treatment of taxpayers operating abroad through foreign branches and disregarded entities to the treatment already afforded to taxpayers operating through foreign corporations. According to JCT, this provision would increase revenues by $250 million over ten years.

Limitation on the Amount of Foreign Taxes Deemed Paid with Respect to Section 956 Inclusions:

The bill would limit the amount of foreign tax credits that may be claimed on a deemed dividend under section 956 to the amount that would have been allowed with respect to an actual dividend. According to JCT, this provision would increase revenues by $704 million over ten years

Special Rule with Respect to Certain Redemptions by Foreign Subsidiaries:

The bill would eliminate a tax planning technique that allows foreign-based multinationals (e.g. a foreign-based company that owns a U.S. company, and that U.S. company owns a foreign subsidiary) earnings to bypass the U.S. tax system. According to JCT, this provision would increase revenues by $203 million over ten years.

The bill would prevent taxpayers from using certain techniques to minimize the amount of foreign source interest expense, which has the effect of boosting foreign source income – thus allowing taxpayer to utilize more foreign tax credits. According to JCT, this provision would increase revenues by $390 million over ten years.

Termination of Special Rules for Interest and Dividend Received from Persons Meeting the 80-percent Foreign Business Requirement:

The bill terminates the “80/20” rule that allowed a corporation with gross income of at least 80 percent from a foreign source income and attributable to foreign trade or business during a three-year period. Some corporations that meet specific requirements and are not abusing the “80/20” rule company rules may receive relief. According to JCT, this provision would increase revenues by $153 million over ten years.

Source Rule for Income on Guarantees:

The bill would stipulate that guarantees on indebtedness issues after the date of enactment will be sourced like interest; if paid by U.S. taxpayers to foreign persons­­ - it will be subject to withholding. According to JCT, this provision would increase revenues by $2 billion over ten years.

Limitation on Extension of Statute of Limitations for Failure to Notify Secretary of Certain Foreign Transfers:

The bill would make a technical correction to the Hiring Incentives to Restore Employment (HIRE). This provision would clarify the circumstances in which the statute of limitations period for corporations that fail to provide certain information on cross-border transactions or foreign assets. According to JCT, this provision would have no revenue impact over ten years.

The bill would require a minimum 10-year term for grantors to retain annuity trusts [GRATS]. This provision would prevent individuals from using short-term GRATs to transfer the remaining portion of the grantors interest in the trust tax free; thus this would require that GRATs have a minimum of 10 years, and the amount of the annuity does not decrease during the decrease during the term. According to JCT, this provision is estimated to raise revenues by $5.272 billion over 10 years.

Possible Member Concerns:

Some members may be concerned about using estate and gift taxes as offsets to a bill.

Crude Tall Oil Ineligible for CellulosicBiofuel Producer Credit:

The bill would exclude crude tall oil (CTO) from receiving the current $1.01/gallon, non-refundable cellulosicbiofuel producer credit for the production of certain cellulosic-based alternative fuels. The provision would exclude CTO from eligibility for this credit. According to JCT, this provision would increase revenue by $1.849 billion over 10 years.

Increase Penalties for failure to file information returns:

Increase the information return penalties:

Any person required to file information returns are subject to penalties for failure to file. This provision would increase the penalties, based on the following table:

Time of Filing: Not more than 30 days lateCurrent Law: $15 per return / $75,000 cap Proposed Change: $30 per return / $250,000 cap

Time of Filing: 31 days late - August 1st Current Law: $30 per return / $150,000 cap Proposed Change: $60 per return / $500,000 cap

Time of Filing: After August 1st Current Law: $50 per return / $250,000 cap Proposed Law: $100 per return / $1,500,000 cap

Time of Filing: Intentional disregard Current Law: $100 per return / no cap Proposed Law: $250 per return / no cap

Under both current law and the provision, reduced caps apply to small filers with gross receipts under $5 million. These caps are also increased:

Time of Filing (Small Filers): Not more than 30 days late Current Law: $15 per return / $25,000 cap Proposed Change: $30 per return / $75,000 cap

Time of Filing (Small Filers): Intentional disregard Current Law: $100 per return / no cap Proposed Law: $250 per return / no cap

According to JCT, this provision would increase revenue by $421 million over 10 years.

Treatment of Securities of a Controlled Corporation Exchanged for Assets in Certain Reorganizations:

The bill would change the rules for treatment of securities transferred from a controlled-corporation for assets during reorganization. Under current law, shareholders and corporations are generally allowed to defer tax on gains relating to some corporate reorganizations such as certain mergers and spin-offs, provided the reorganization meets numerous requirements in the Code and regulations. Under the bill, no loss would be recognized if a corporation transfers assets for stock during reorganization. However, the sum of gains transferred and not distributed in the reorganization would be immediately recognized for tax purposes. According to JCT, this provision would increase taxes by $218 million over ten years.

COST

According to JCT, this bill would increase revenue by $149 million over 10 years.

Republican objections blocked progress on a small-business bill in the Senate Thursday, leaving the measure’s future in doubt.

An effort by Majority Leader Harry Reid , D-Nev., to limit debate on a substitute amendment to the bill fell short of the 60 votes needed as all 41 Republicans united against it.The vote diminished but did not entirely extinguish prospects for passage of the bill before the August recess. Democrats and President Obama continue to urge the Senate to act quickly.

Republicans complained that they were not given a fair chance to get votes on amendments. Democrats on Wednesday night had offered them votes on three amendments, but Minority Leader Mitch McConnell , R-Ky., wanted to consider eight amendments, including votes on the estate tax, nuclear-plant loan guarantees and border security.

“My frustration is pretty high,” Reid said after further talks with McConnell failed to produce a deal.

McConnell insisted the bill was not dead. “We’re getting closer,” he said of his negotiations with Reid. “There’s a chance of significant progress very soon.”

Reid remained skeptical. “I don’t think they want an agreement. We agreed to everything they wanted,” he said.

The measure pending before the Senate would create a $30 billion small business lending fund, extend $12 billion in tax breaks and enhance federal programs designed to help small businesses.

Elimination of Advanced EITC. Presently, low- and moderate-income individuals may qualify for a refundable earned income tax credit (EITC). Individuals have the option of requesting advanced payments of the EITC throughout the year by having their payments of withheld income reduced by their employer. The advanced EITC payment option, however, is not popular and only about three percent of eligible EITC recipients choose this option. The substitute eliminates the advanced EITC payment option. The provision is estimated to raise $1.131 billion over 10 years.

Addition of Small Business Lending Fund. The substitute authorizes the creation of the Small Business Lending Fund to provide Treasury with the ability to purchase preferred stock and other debt instruments from eligible financial institutions with less than $10 billion in total assets. Eligible institutions include insured depositories, bank and savings and loan holding companies, and certain community development loan funds. Eligible institutions with less than $1 billion in total assets can apply to receive investments of up to five percent of their risk-weighted assets. Eligible institutions between $1 billion and $10 billion in total assets can receive investments of up to three percent of risk-weighted assets. Participating institutions will pay a five percent dividend rate on the preferred stock, but this rate can be reduced to as low as one percent if a bank demonstrates a 10 percent increase in small business lending relative to a baseline set using the four quarters prior to enactment. The dividend rate is increased to seven percent after two years, if the bank does not increase its small business lending. To encourage timely repayment, the rate increases to nine percent after four and a half years. Treasury’s authority to make capital investments under the program is terminated one year after the date of enactment. This provision is estimated to raise $1.1 billion over ten years.

Addition of the Export Promotion Act. The substitute would assist U.S. small and mid-sized businesses that are looking to export their products but do not have the resources or know-how to find new international customers. First, it increases the activities and staffing of the Department of Commerce in carrying out its mission to promote U.S. exports. Second, it authorizes increased funding for export grants available to industry associations and non-profit institutions. Finally, the amendment requires that decisions to fund manufacturing and innovation grants include exporting potential as one of the application considerations. Based on estimates provided by the Department of Commerce, this legislation is projected to create over 43,000 jobs once the funds are appropriated. This change has no cost associated with it.

Addition of Agriculture Disaster Relief. The substitute would provide assistance for 2009 agricultural losses for crops, including specialty crops, livestock, sugar, aquaculture, cottonseed, and poultry. In addition to approximately $1 billion in supplemental direct payments to producers with a minimum five percent loss in production, the bill would provide $42 million in cottonseed assistance, $25 million in aquaculture assistance, $21 million to a Hawaiian sugar cane cooperative, $75 million to poultry producers, $50 million for livestock producers, and $300 million for specialty crop producers. The program is designed for payments to be issued quickly through USDA and State block grants. States may continue to receive Conservation Reserve Program payments for the purposes of school funding. This provision is estimated to cost $1.4 79 billion over ten years.

Addition of a Provision to Reallocate Future Spending. The substitute reallocates $500 million of future spending allotted in the Recovery Act and returns Supplemental Nutrition Assistance Program (SNAP), or food stamps, benefits to the levels that individuals would have received in 2017 under pre-Recovery Act law, effective August 31, 2017. This modification reduces the cost of the bill by $500 million over ten years.

Use of Predictive Modeling and Other Analytics Technologies to Identify and Prevent Waste, Fraud and Abuse in the Medicare Fee-for Service Program. The substitute would require the Secretary to contract with private companies to conduct predictive modeling and other analytics technologies to identify and prevent payment of improper claims submitted under Parts A and B of Medicare. The Secretary would be required to identify the ten states that have the highest risk of waste, fraud and abuse in the Medicare program, and for one year, predictive modeling and other analytics technologies would be used to identify and stop fraudulent claims in these states. After this initial year, the Inspector General of the Department of HHS (HHS OIG) would report to Congress on the actual savings to the Medicare fee-for-service during the preceding year, projected future savings to the program as a result of the use of these technologies, and the return on investments as a result of the predictive analytics technologies. The Secretary would be required to report to Congress on the effect, if any, the technologies have on Medicare beneficiaries and providers. If the HHS OIG certifies more than nominal savings from the use of the technology, its use would be expanded to ten additional states for another year. After the second year of use, the Secretary and the HHS OIG, would conduct a second analysis and certification. If this analysis and certification are positive, the technologies would be expanded to the Medicare fee-for­service program in every state for an additional year. Finally, after that additional year, a third analysis would be conducted, and if positive, the Secretary would expand the use of the technologies to Medicaid and the Children’s Health Insurance Program (CHIP). If during any evaluation and certification, the HHS OIG does not certify savings, a moratorium would be imposed on the expansion of the technologies for one year. This change increases the cost of the bill by $930 million over ten years.

Sorry for the long email but please find below provisions of S 5297. This hopefully will be coming up in the Senate today. The Dems have agreed to take amendments and one amendment is to repeal of the 1099 requirement. It probably will be defeated by the Dems.

Regardless of what happens on the 1099 issue the bill can be voted on today. If the bill passes we are hoping that the House will not ask for a conference committee. As you will recall the House has passed a bill. If they do ask for a reconcile committee we probably won’t see anything move forward until September. The ideal situation is for the House to accept the Senate bill and pass it tomorrow.

A lot of ifs. I will see what happens today and may get back to you asking you to contact your House member and ask them to support the Senate bill.

Sharon Bernstein of the LA Times is writing a piece on this legislation and is looking for someone who is working with the SBA for a 7a or 504 loan. As of yesterday there were over 700 loans in the queue. Are any of you in the queue? Have any of you received an SBA loan since the end of May and paid the SBA fees? It would be best if you were in the LA area but if you meet the above criteria please contact Sharon at 213-237-7962.

100% Exclusion of Small Business Capital Gains. Generally, non-corporate taxpayers may exclude 50 percent of the gain from the sale of certain small business stock acquired at original issue and held for more than five years. For stock acquired after February 17, 2009 and before January 1, 2011, the exclusion is increased to 75 percent. At the time of sale, however, 28% of the excluded gain will be treated as a tax preference item subject to the alternative minimum tax (AMT). Qualifying small business stock is from a C corporation whose gross assets do not exceed $50 million (including the proceeds received from the issuance of the stock) and who meets a specific active business requirement. The amount of gain eligible for the exclusion is limited to the greater of ten times the taxpayer’s basis in the stock or $10 million of gain from stock in that corporation. This bill would temporarily increase further the amount of the exclusion to 100 percent of the gain from the sale of qualifying small business stock that is acquired after the date of enactment in 2010 and held for more than five years. Additionally, the bill eliminates the AMT preference item attributable for that sale. This provision is estimated to cost $517 million over ten years.

General Business Credit Carried Back Five Years. Under current law, a business’ unused general business credit may generally be carried back to offset taxes paid in the previous year, and the remaining amount may be carried forward for 20 years to offset future tax liabilities. This bill extends the one year carryback for general business credits to five years for certain small businesses. This applies to general business credits for those sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years. This provision is estimated to cost $107 million over ten years.

General Business Credit Not Subject to AMT. Under the Alternative Minimum Tax (AMT), taxpayers may generally only claim allowable general business credits against their regular tax liability, and only to the extent that their regular tax liability exceeds their AMT liability. A few credits may be used to offset AMT liability, such as the credit for small business employee health insurance expense. This bill allows certain small businesses to use all types of general business credits against their AMT. This applies to general business credits for those sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years. This provision is estimated to cost $977 million over ten years.

S Corp Holding Period. Generally, a C corporation converting to an S corporation must hold onto any appreciated assets for 10 years following its conversion or face a business-level tax imposed on the built-in gain at the highest corporate rate of 35 percent. This holding period is reduced where the 7th taxable year in the holding period preceded the taxable year beginning in 2009 or 2010. This bill temporarily shortens the holding period of assets subject to the built-in gains tax to 5 years if the 5th taxable year in the holding period precedes the taxable year beginning in 2011. This provision is estimated to cost $70 million over ten years.

Increase Small Business Administration (SBA) Loan Limits. This provision increases 7(a) loan limits from $2 million to $5 million, 504 loans from $1.5 million to $5.5 million, and microloans from $35,000 to $50,000. It also increases the government guarantee on 7(a) loan limits, while providing the elimination of borrower fees on 7(a) and 504 loans through December 31, 2010. It increases the 7(a) Express Loans from $300,000 to $1 million to increase working capital to small businesses. The package also includes Intermediary Lending Pilot program, which allows the SBA to make direct loans to eligible nonprofit lending intermediaries, in turn allowing them to make loans to new or growing small businesses. SBA has estimated that the loan increase would increase lending to small businesses by $5 billion in the first year. This provision is estimated to cost $26 million over two years.

Extend Elimination of Small Business Administration (SBA) Loan Fees. This provision extends the American Recovery and Reinvestment Act small business lending program that eliminates the fees normally charged for loans through the SBA 7(a) and 504 loan programs and increases the government guarantees on 7(a) loans from 75% to 90%. Since its creation, the program has supported over $26 billion in small business lending, which has helped to create or retain over 650,000 jobs. This provision was added in the substitute amendment introduced on July 21, 2010. This provision is estimated to cost $505 million over ten years.

State Small Business Credit Initiative (SSBCI). The bill provides $1.5 billion in grants to States to support small business lending programs. States will apply for the funds to be used for approved programs that leverage private lenders to extend greater credit to small businesses and manufacturers. The program allows States to build upon successful models for state small business programs, including capital access, loan participation, collateral support, State-run venture capital, and credit guarantee programs. Funds are allocated to the States using formulas based on certain State employment and unemployment rate data. States have nine months to apply for the program. If the state does not apply, the largest municipalities of the states can apply. This provision was increased by $600 million in the substitute amendment introduced on July 21, 2010. This provision is estimated to cost $1.5 billion over ten years.

Provisions to Encourage Investment

Increase of Section 179 Expensing and Expansion to Certain Real Property. Under current law, taxpayers may elect to write-off the costs of certain tangible personal property that is purchased for use in the active conduct of a trade or business in the year of acquisition in lieu of recovering these costs over time through depreciation. For the taxable year beginning in 2010, taxpayers may write-off up to $250,000 of these capital expenditures subject to a phase-out once these capital expenditures exceed $800,000. After 2010, the thresholds revert to $25,000 and $200,000, respectively. This bill would increase the thresholds to $500,000 and $2,000,000 for the taxable years beginning in 2010 and 2011. Within those thresholds, this bill would allow taxpayers to expense up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. This provision is estimated to cost $2.2 billion over ten years.

Extension of Bonus Depreciation. Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Congress temporarily allowed businesses to recover the costs of certain capital expenditures made in 2008 and 2009 more quickly than under ordinary depreciation schedules by permitting those businesses to immediately write-off 50 percent of the cost of depreciable property placed in service in those years. This bill extends the additional, first-year 50 percent depreciation for qualifying property purchased and placed in service in 2010. This provision is estimated to cost $5.5 billion over ten years.

Special Rule for Long-Term Contract Accounting. This provision decouples bonus depreciation from allocation of contract costs under the percentage of completion accounting method rules for assets with a depreciable life of seven years or less in order to allow contractors that do not complete contracts within the same year in which they are entered into to benefit from bonus depreciation. This provision was added in the substitute amendment introduced on July 21, 2010. This provision is estimated to have no cost over ten years.

Provisions to Promote Entrepreneurship

Increased Deduction for Start-up Expenditures. Under current law, taxpayers may deduct up to $5,000 in trade or business start-up expenditures. The amount that a business may deduct is reduced by the amount by which start-up expenditures exceed $50,000. Start-up expenditures are defined as expenses paid or incurred in connection with investigating or creating an active trade or business, which would be deductible if paid or incurred in connection with the operation of an existing trade or business. For the taxable year beginning in 2010, this bill would temporarily increase the amount of start-up expenditures that may be deducted to $10,000 subject to a $60,000 phase-out threshold. This provision is estimated to cost $230 million over ten years.

Small Business Export Promotion. The Office of the United States Trade Representative (USTR) plays an important role in promoting U.S. exports, and recently increased its focus on small business export promotion in particular. USTR has done so in several respects, including the creation of the position of Assistant USTR for Small Business, Market Access, and Industrial Competitiveness within USTR. This official will help ensure that USTR’s trade policy addresses the challenges facing smaller U.S. exporters and promotes global export opportunities for them. The bill authorizes funds for USTR’s market access and trade enforcement activities targeted at helping small business increase market access and ensure a level playing field on which to sell their U.S. made goods. This provision has no cost associated with it.

Enhanced Small Business Trade Opportunities. This provision improves the SBA’s trade and export finance programs and elevates the Office of International Trade within the SBA. It adds Export Finance Specialists to the SBA’s trade counseling programs. It also establishes the State Export Promotion Grant Program (STEP), which would increase the number of small businesses that export. In addition, it improves coordination between federal and state agencies and SBA resource partners. This leverages more than $1 billion in export capitol for small businesses, which will create or save as many as 40,000 – 50,000 jobs in 2010. This provision is estimated to cost $58 million over two years.

Improved Small Business Contracting. Removes the red tape and closes loopholes that too often put government work into the hands of multinational corporations instead of Main Street businesses. Increasing contracts to small businesses by just 2 percent can create more than 60,000 jobs. This legislation also provides for a periodic review of small business size standards to ensure that size indicators are consistent with inflation and industry growth of small businesses. It establishes accountability of large business prime contractors for prompt payment to small business subcontractors. This provision is estimated to cost $142 million over two years.

Relief for Community Partners. This provision allows SBA to waive or reduce the non-federal share of its funding requirements for up to one year, through fiscal year 2012. It also gives relief to Women’s Business Centers (WBCs) and microloan intermediaries, which provide assistance to underserved communities to start and grow small businesses. The SBA estimates that the microloan program will create or save more than 10,000 jobs in Fiscal Year 2011. This legislation also provides an additional $50 million for the Small Business Development Centers to provide technical assistance to small business owners and entrepreneurs. This provision is estimated to cost $50 million for one year.

Provisions to Promote Small Business Fairness

Modify Section 6707A Penalty. The bill revises section 6707A of the Internal Revenue Code to make the penalty for failing to disclose a reportable transaction proportionate to the underlying tax savings. The penalty for failure to disclose reportable transactions to the IRS would be set at 75 percent of the tax benefit received. Reportable transactions are defined as investments in transactions that the IRS has identified as listed tax shelters or that have characteristics of tax shelters, including large losses or confidentiality agreements. The minimum penalty under this bill is $10,000 for corporations and $5,000 for individuals, and the maximum penalty is $200,000 for corporations and $100,000 for individuals. The bill also requires the IRS to provide an annual report to the Senate Finance Committee and to the House Ways and Means Committee giving an account of certain tax-shelter related penalties asserted during the year. This provision is estimated to cost $176 million over ten years.

Deductibility of Health Insurance for the Purposes of Calculating Self-Employment Tax. Under current law, business owners are not permitted to deduct the cost of health insurance for themselves and their family members for purposes of calculating self-employment tax. This provision would allow business owners to deduct the cost of health insurance incurred in 2010 for themselves and their family members in the calculation of their 2010 self-employment tax. This provision is estimated to cost $1.96 billion over ten years.

Enhancements to Small Business Contracting Parity Programs. This provision removes the priority one contracting program has over another, making clear that no single restricted competition program has priority over another. It places the small business contracting programs, HUBZone, 8(a), Service-Disabled Veterans and Women-Owned Businesses on a level playing field when competing for Federal contracts. This provision has no cost associated with it.

Improvements to Disaster Recovery to Include Aquaculture. Currently, the SBA excludes aquaculture businesses from receiving SBA Economic Injury Disaster Loans (EIDL). This section would allow SBA, provided it does not duplicate other Federal disaster programs for that disaster, to make economic injury disaster loans to these businesses. This provision has no cost associated with it.

Require Federal Agencies to Expand Their Assessments of Economic Effects on Small Businesses. This provision strengthens the Regulatory Flexibility Act by requiring agencies to respond to the SBA Chief Counsel of Advocacy’s comments in the final rule. It also seeks more independence for the Office of Advocacy by mandating a separate line item in the SBA’s annual budget. This provision has no cost associated with it.

Remove Cellular Phones from “Listed Property.” This provision would “delist” cell phones so their cost can be deducted or depreciated like other business property, without onerous recordkeeping requirements. This provision was added in the substitute amendment introduced on July 21, 2010. This provision is estimated to cost $410 million over ten years.

Offsets – Reducing the Tax Gap

Require Information Reporting for Rental Property Expense Payments. The bill requires persons receiving rental income from real property to file information returns to the IRS and to service providers reporting payments of $600 or more during the year for rental property expenses. In general, there is an exception for individuals renting their principal residences, including active members of the military, from the reporting requirements. This provision is estimated to raise $2.5 billion over ten years.

Increase Penalties for Failure to File Information Returns. The bill increases penalties for failure to timely file information returns to the IRS. The first-tier penalty is increased from $15 to $30, and the calendar year maximum is increased from $75,000 to $250,000. The second-tier penalty is increased from $30 to $60, and the calendar year maximum is increased from $150,000 to $500,000. The third-tier penalty is increased from $50 to $100, and the calendar year maximum is increased from $250,000 to $1.5 million. For small filers, the calendar year maximum is increased from $25,000 to $75,000 for the first-tier penalty, from $50,000 to $200,000 for the second-tier penalty, and from $100,000 to $500,000 for the third-tier penalty. The minimum penalty for each failure due to intentional disregard is increased from $100 to $250. The penalty amounts are adjusted every five years for inflation. Penalties for failure to file information returns to payees are similarly increased. This provision is estimated to raise $421 million over ten years.

Application of Continuous Levy to Tax Liabilities of Certain Federal Contractors. Generally, before the IRS can issue a levy for an unpaid Federal tax liability, it must give the taxpayer an opportunity for a collection due process (CDP) hearing. Prior to the Federal government making disbursements to Federal contractors, an automated check for a Federal tax liability occurs. When such a liability is identified, the IRS issues a CDP notice to the contractor but cannot levy on payments to the contractor until the CDP requirements are complete. The bill allows IRS to issue levies prior to a CDP hearing on Federal tax liabilities of Federal contractors. It also provides the taxpayer with an opportunity for a CDP hearing within a reasonable time after a levy is issued. This provision is estimated to raise $1.1 billion over ten years.

Offsets – Promoting Retirement Preparation

Allow Participants in Governmental 457 Plans to Treat Elective Deferrals as Roth Contributions. Beginning in 2011, the bill would allow retirement savings plans sponsored by state and local governments (governmental 457(b) plans) to include Roth accounts, which are currently available only in 401(k) and 403(b) plans and will be available in the federal Thrift Savings Plan in 2011. Contributions to Roth accounts are made on an after-tax basis, but distributions of both principal and earnings are generally tax-free. This provision is estimated to raise $506 million over ten years.

Allow Rollovers from Elective Deferral Plans to Roth Designated Accounts. The bill would allow 401(k), 403(b), and governmental 457(b) plans to permit participants to roll their pre-tax account balances into a Roth account. The amount of the rollover would be includible in taxable income except to the extent it is the return of after-tax contributions. If the rollover is made in 2010, the participant can elect to pay the tax in 2011 and 2012. Plans would be able to allow these rollovers immediately upon enactment. This provision is estimated to raise $5.1 billion over ten years.

Permit Partial Annuitization of a Nonqualified Annuity Contract. The substitute would allow holders of nonqualified annuities (that is, annuity contracts held outside of a tax-qualified retirement plan or IRA) to elect to receive a portion of the contract in the form of a stream of annuity contracts, leaving the remainder of the contract to accumulate income on a tax-deferred basis. This provision was added in the substitute amendment introduced on July 21, 2010. This provision is estimated to raise $956 million over ten years.

Offsets – Closing Unintended Loopholes

Crude Tall Oil Ineligible for Cellulosic Biofuel Producer Credit. In 2008, Congress enacted a $1.01 per gallon tax credit for the production of biofuel from cellulosic feedstocks in order to encourage the development of new production capacity for biofuels that are not derived from food source materials. Some taxpayers are seeking to claim the cellulosic biofuel tax credit for processed fuels that are highly corrosive, such as crude tall oil (another waste by-product of the paper manufacturing process). The bill limits eligibility for the tax credit to fuels that are not highly corrosive (i.e., fuels that could be used in a car engine or in a home heating application). This provision is estimated to raise $1.8 billion over ten years.

Source Rules on Guarantees. Under current law, the treatment of guarantee fees under the source rules is unclear. If guarantee fees are sourced like services, they are sourced according to the location in which the services were performed. If the guarantee fees are sourced like interest, they are sourced by reference to the country of residence of the payor. A recent court case determined that guarantee fees should be sourced like services. Sourcing guarantee fees in a manner similar to services would permit U.S. subsidiaries of foreign corporations to engage in earning stripping transactions by making deductible payments to foreign affiliates (thereby reducing their U.S. income tax liability) without the imposition of U.S. withholding tax on the payment. The substitute would provide that amounts received directly or indirectly for guarantees of indebtedness of the payor issued after the date of enactment will be sourced like interest and, as a result, if paid by U.S. taxpayers to foreign persons will generally be subject to withholding tax. No inference is intended with respect to the treatment of guarantees issued before the date of enactment. This provision was added in the substitute amendment introduced on July 21, 2010. This provision is estimated to raise $2 billion over ten years.

Monday, July 26, 2010

Please find information sent to me by Small Business California affiliate member the Plumbing Heating and Cooling Contractors of California. For those of you providing medical insurance do you see this as a significant burden on you.

NOTE: As of this writing, the IRS not issued any guidance on this reporting requirement. We will update you as soon as such, guidance becomes available.

The Patient Protection and Affordable Care Act (PPACA) adds a new reporting requirement aimed at improving health care transparency and cost awareness by requiring employers to report the value of employees’ health benefits on Form W‐2s.

For taxable years beginning after December 31, 2010, employers will be required to calculate and report the aggregate cost of applicable employer‐sponsored health insurance coverage on employees' Form W‐2s.[1]

This new reporting requirement applies for employees' tax years beginning after December 31, 2010. However, because employees are entitled to request their Form W‐2 early if they terminate employment during the year, [2] payroll systems need to be updated for this change by January 2011.

Therefore, while most W‐2s for tax year 2011 will be issued in January 2012, W‐2s reflecting the new health insurance information must be available no later than February 1, 2011, in the event that a terminating employee requests one.[3]

It is important to note that the aggregate cost of an employee's health benefits will not be included in the employee's taxable income. The W‐2 reporting will be a way to track coverage values for the 40% excise tax(starting in 2018) on “high‐cost” employer‐based medical coverage above certain thresholds (the so‐called “Cadillac plan tax”).[4]

The coverage costs (whether under an insured or self‐insured plan) that must be reported under the new requirement includes:

If an employee enrolls in employer‐sponsored health insurance coverage under multiple plans, the aggregate value of all such health coverage (except certain benefits, discussed in section below) must be disclosed. For example, if an employee enrolls in employer‐sponsored health insurance coverage under a major medical plan, a dental plan and a vision plan, the employer is required to report the total value of the combination of all of these health‐related insurance policies. For this purpose, employers generally use the same value for all similarly situated employees receiving the same category of coverage (such as single or family health insurance coverage).[7]

Employers will not be required to provide a specific breakdown of the various types of coverage, but must only report an aggregate cost. For example, if an employee enrolls in medical, dental and prescription drug coverage, the employer only has to report the total value of all coverage, not a value for each individual benefit.

Benefits Exempt from Form W‐2 Reporting Requirements -

The following employer provided benefits are not required to be reported on Form W‐2 under the new health care law:

• Long‐term care, accident or disability income benefits• Specific disease or illness policies (such as cancer policies), and hospital (or other) indemnity insurancepolicies where the full premium is paid by the employee on an after‐tax basis• Archer MSA or HSA contributions of the employee or the employee’s spouse• Salary reduction contributions to a Health FSA

Valuing Plans

The most challenging aspect of this new reporting requirement is determining the value of the employer sponsored health coverage for each employee. In determining the value of health insurance coverage, the employer will calculate the applicable premiums for the taxable year for such health coverage for the employee under the rules for COBRA continuation coverage under IRC Sec. 4980B(f)(4) (and accompanying Treasury regulations). The value that the employer is required to report is the aggregate premium calculated under the COBRA rules, not the portion of the premium that the employee has to pay.

If the employer’s plan provides for the same COBRA continuation coverage premium for both individual coverage and family coverage, the employer plan would be required to calculate separate individual and family premiums and the employer would report the value of the coverage the employee received.[8]

For example, if one employee received family coverage, the employer would report the premium amount for family coverage for that employee. For another employee that receives individual coverage, the employer would report the premium amount for individual coverage.

A particular challenge for employers might be that some of the plans covered by the new reporting requirement, such as on‐site medical clinics, are not plans that they have previously valued for COBRA purposes. With the new requirements, employers will need to come up with reportable values for coverage provided under these programs, and we understand that the IRS is currently working on this guidance.[9]____________________________________________________________________________________________1 Sec. 9002 of PPACA amended Internal Revenue Code section 6051(a) by adding a new subsection (14) to provide for thisreporting requirement.2 Treas. Reg. section 31.6051‐1(d)(1).3 Maureen M. Maly, Faegre & Benson, LLP, “Health Care Reform Includes Form W‐2 Reporting Requirement,” Society for HumanResource Management, May 7, 2010.4 PPACA § 9001 and the Health Care and Education Reconciliation Act § 1401 adding new IRC section 4980I.5 The term de minimis means (as provided by IRC Sec. 132(e)(1)) any property or service, the value of which is (after taking intoaccount the frequency with which similar fringe benefits are provided by the employer to the employer’s employees) so small asto make accounting for it unreasonable or administratively impracticable. In other instances where the IRS was interpretingwhether a medical clinic provided de minimis benefits, an on‐site nurse who provided emergency services was considered a deminimis benefit, while a clinic at a hospital that provided full‐scale medical treatment was not considered de minimis.6 Maly, Faegre & Benson, LLP, Society for Human Resource Management.7 Joint Committee on Taxation, “Technical Explanation of the Revenue Provisions of the Reconciliation Act of 2010, as Amended,in Combination with the Patient Protection and Affordable Care Act” (March 21, 2010); JCX‐18‐10, pg. 67.8 Ibid.9 Maly, Faegre & Benson, LLP, Society for Human Resource Management.

The Plumbing-Heating-Cooling Contractors Association is dedicated to the promotion, advancement, education and training of the industry for the protection of our environment and the health, safety and comfort of society.

***This information is intended for California PHCC Members and not necessarily endorsed by NAPHCC.

Thursday, July 22, 2010

For the SF recipients of this email decision was made this morning by the court to uphold Michaela Alioto Pier’s laws suit allowing her to run in November. She therefore will be running in District 2.

This morning I attended and event for Jobs Now. To date 3620 San Franciscans have been hired through the Jobs Now program. Over 700 employers have used the program and it is estimated that $55 million in wages have been pumped into the SF economy.

I have always said this was a great program. Early on I was critical of its implementation by the City. My issues and those brought forth by other by other small businesses were addressed by Trent Rohr working closely with Tony Lugo. I would like to say publically that they were very responsive and really made it a program that SF can be proud of. Thank you Trent and Tony.

I would also like to applaud the Mayor for his leadership and making this the best program of its kind in the US. Thank you Mayor Newsom.

Now we all need to work to get funding continued beyond September 30. I will be working with a few Senators around the country. Senators Feinstein and Boxer are on board and I want to thank them for their help but quite frankly we need support from Republican Senators. For the Board members of NSBA that receive this email can you help us in your states. Nationally over 200000 people have been hired and we are looking for $2.5 billion. It is expected this will be taken up after recess.

Wednesday, July 21, 2010

Please see email from NADCO[ 504 lenders]. It clearly spells out where we are with our SBA situation on financing.

Note HR 4213 is gone now and we are down to one last shot with HR 5297. Senators Boxer and Feinstein are supporting this.

SB Cal is working with NADCVO and the National Association of Government Lenders on getting this passed. The National Small Business Association is also working on this and did a press conference this morning with Senator Boxer.

NADCO Legislative Update and Request for Urgent Phone Calls to Senators TODAYThis is an update on recent Senate actions on key legislation and an urgent request for your immediate actions to contact your Senators to ask for their support of HR 5297.

HR 4213 status: Last night, the Senate invoked cloture on a substitute amendment to HR 4213. This new amendment extends unemployment benefits, but nothing else. The original 504 and 7a fee offset funding and the 90% 7a loan guarantee we expected were stripped from this Senate amendment. We expect the Senate to pass this new bill language today. We also expect the House to quickly pass this narrow bill, and the President to sign it shortly. Again, this new bill does not contain any funding for SBA program fee reductions.

HR 5297 status: Still pending in the Senate is HR 5297, or the small business lending fund bill that could provide up to $30 billion in re-cycled TARP funds to community banks for lending purposes.Senate majority leader Reid is expected to introduce an amendment to this bill that will NOT include the $30 billion in bank loan funds. Due to the efforts of the Senate Small Business Committee leadership, Senators Mary Landrieu (D-La) and Olympia Snowe (R-Me), we expect Reid’s amendment to include:

• Increase the 504 loan size to $5 million• Increase the 7a loan size to $5 million• Expand refinancing by 504 for businesses to retain jobs• Increase the size standards for 504• Extend the ARRA 504 first mortgage guarantee program for two years Further, and again due to the efforts of the Senate Committee leadership, an amendment may be included that extends and provides funds for 504 and 7a borrower fee relief until 12/31/2010. This would also extend the 7a 90% loan guarantee.

REQUEST TO EVERY CDC: With this new amended bill containing so many benefits for our small business borrowers now and in the future, we urgently request that you make immediate phone calls (letters and emails will not be read or have time to get there) to all Senate offices for states that your CDCs serve.

Ask every Senator to support and vote for HR 5297. If necessary, explain to them how these program enhancements will help the small businesses you serve to preserve and create jobs. THAT is the most important issue that will sway Senate votes.

Please call both Democrats and Republicans. Members of both parties should support this bill. You can access Senate offices either by going to the NADCO.ORG web site legislative section and getting your Senator’s phone numbers from our on-line directory (CapWiz), or be calling the Senate switchboard at 202-224-3121, and asking for the Senator’s office.

Please get back to us with a brief email on what your Senators agree to do. Thank you for your immediate action on this request. This is likely the last opportunity to get these changes done in this Congress. It must be done today.

Tuesday, July 20, 2010

We are beginning to get a lot of attention to the requirement that all businesses that purchase $600 or more from a provider of goods and services fill out a 1099 form. HR 5141 by Congressman Lungren, which repeals this requirement, now has about 100 cosigners. I believe they are all Republican.

In the Senate 12 Democratic Senators have sent a letter to Commissioner Douglas Shulman at the IRS to make revisions to the requirement saying it “may negatively impact day to day operations of American businesses, especially small businesses” The letter also points out and concludes by saying:

“we insist the IRS develop ways in which small businesses can reduce expected paperwork from this requirement-possibly through consolidating existing forms, for example-and that the IRS report its proposed solutions to the Senate Committee on Small Business and Entrepreneurship prior to implementation of the new law”

I have been in contact with Senator Boxer’s office and the Senator is also looking to do something on this.

We have to keep the pressure on. See below.

On Friday the Sacramento Business Journal will be holding its annual health care breakfast. The topic will be health care reform. I will be a panelist giving the small business perspective. This is the 6th presentation around the state I have given on this subject. One question I have been asked to address is:

“If you are a small business owner and already offer health coverage to employees how will health care reform affect you? What would be the most cost effective approach-as well as the best move for your employees-as far as health care coverage? “

1099 CHANGES AFOOT - Momentum is swinging toward altering the so-called 1099 provision in the reform law, which requires small businesses to file a 1099 form for every company from which they buy more than $600 in good and services. The Treasury department is aware of the business community's concerns that the provision is potentially burdensome and recently asked for formal comments on how to limit it. Four Democratic senators have asked Treasury to look into the problem and several Republicans have signed on to an amendment from Sen. Johanns to repeal the whole provision.

Drafters had hoped the provision would generate $17 billion to help pay for reform. But James Gelfand, director of health policy at the U.S. Chamber of Commerce, says he's rarely seen an issue on which members are so strongly united in opposition, calling them "apoplectic" over the provision. An administration source tells Pulse that the comments from the business community are "obviously something we take seriously" and that there's been significant outreach to them. Treasury has already made one change: Transactions on credit and debit cards won't have to reported on a 1099.

Monday, July 12, 2010

We all recognize the serious burden small businesses will face in 2012 when they will be required to file 1099s for anyone that provides you goods and services with a value of over $600. Please see below email from Congressman Lungrens office. I talked to Kevin and Alex and they asked for your help.

Note your comments must be in by September 29th.

Today Fed Chair Ben Bernanke announced that ways must be found to help small businesses with getting loans. There is legislation in Washington that will do this but it is tied up due to ideological bickering. So if the legislation doesn’t pass what can be done.

I don’t know about you but it getting tiring to hear that we create the jobs and are the engine of the economy yet nothing seems to happen in Washington to help solve the problem.

We obtained this information and I wanted to make sure that you were aware of it. We obviously are fully committed to fight for the repeal of this provision. At the same time our interest has always been a concern for small business and to make sure that we get the information out there to the affected parties.

Alex Snyder (in our office) and I will try to call you today. Again, thank your hard work on this issue.

As you are no doubt aware, the health care reform bill passed by Congress in March of this year will have many implications for your business. Hidden within the bill’s 1200 pages is a short provision that will expand the form 1099 reporting requirement. Currently, business owners are required to file 1099 forms for non-corporate services. However, under the Patient Protection and Affordable Care Act (PPACA), the 1099 reporting requirement will be expanded to include businesses transactions, corporate and non-corporate, involving goods and services totaling more than $600 in a given year. This means filing 1099’s for such basic business expenses as phone and internet service, shipping, office supplies, maintenance and travel, not to mention all of the component parts of a particular product.

This provision is especially onerous for small business owners, many of whom are responsible for preparing their own tax documents. Some of my constituents have told me that instead of filing a handful of 1099 forms, as they do now, the PPACA will require them to submit hundreds of 1099’s.

In April, I introduced legislation to repeal this expanded tax reporting mandate. In my view, it simply does not make sense to impose yet another tax burden on small business owners, who provide much-needed jobs for Americans. My bill, H.R. 5141, has received widespread support from Members of Congress as well as from numerous business associations across the nation. I recently received a letter of support from an organization representing more than 70,000 small business owners in California.

The Internal Revenue Service is currently evaluating how to implement the 1099 expansion under the health care bill. The IRS has invited the public to comment on its proposal to exempt credit or debit card transactions from the new reporting requirement. I would encourage you to submit your comments to the IRS by e-mail or “snail mail,” as follows:

Wednesday, July 07, 2010

I hope you all had a great weekend. Last week Elizabeth Echols was named to be the Regional Director of District 9. She has deep roots in the Democratic party and currently heads up the US Green Building Council. I do not know her but Small Business California plans to hold a reception for her after labor day. I hope those of you in the Bay Area can attend.

For those of you in the LA area please see request of Sharon Bernstein of the LA Times. If you are in the LA and have been putting off hiring someone please give her a call this morning. If you call please let me know.

For those of you outside LA I would also like to hear from you if you are in this situation. Is it because you don’t think the consumer demand picture is clear, you can’t get capital, you can’t find qualified people or is there some other reason.

I need to speak to a couple of small business owners who would like to hire people but are putting it off. For a deadline story Wednesday morning. Do you think you might ask your members? I’m at 213-280-0706 (my cell.) It’s for a story on data showing a slowdown in small business hiring.

Friday, July 02, 2010

Trying to figure out who is an independent contractor and who is an employee can be difficult and confusing. It can also have some serious financial ramifications if you mistakenly classify someone as an independent contractor and you get audited by the IRS or EDD.

Our good friends at the California Employers Association have put together this very informative newsletter and given you a great link to help you make the determination. For those of you looking for help in dealing with Human Resource issues I highly recommend you consider joining their organization.

Why is this so difficult for employers?

(Read time less than 3 minutes)

A recent report from the Treasury Inspector General For Tax Administration (TIGTA), said they found weaknesses in the IRS's procedures for ensuring taxpayer compliance with worker status determinations.

"The misclassification of employees as independent contractors is a nationwide problem affecting millions of employees," J. Russell George, Treasury Inspector General for Tax Administration stated. "Left unchecked, it will continue to grow and contribute to the tax gap. The IRS should do more to ensure that the burden of uncollected taxes is not shifted to compliant taxpayers."

The IRS allows both employers and workers to request determination letters from the agency regarding the worker's tax status as an employee or independent contractor. While this determination is binding, TIGTA reported that employers often fail to withhold taxes even though the IRS has stated that the worker is properly classified as an employee. The IRS created Form 8919 so that employees in these circumstances could report their personal liability for Social Security and Medicare wages. Nevertheless, TIGTA found that employees may be abusing Form 8919 in order to avoid payment of employment taxes and estimated that 74,068 taxpayers avoided $26.2 million in Social Security and Medicare taxes, and the IRS could lose $131 million in Social Security and Medicare taxes over the course of the next five years as aresult.

The IRS disagreed with TIGTA's valuation of this amount, pointing out situations where a taxpayer could receive relief when the taxpayer could be ruled an independent contractor by a court and would not have an employment tax liability.

What is really intriguing is why it is so difficult for employers to determine whether someone is an independent contractors or an employee? There are several EDD resources out there and the best one's we’ve found over the years is a simple yes and no questionnaire.

Answer too many questions with a “yes” and you know you’ve got an employee on your hands no matter how much you’d wish the person could be classified as an independent contractor.

Small Business California Board member Ginne Mistal sent me this note about NORTEC. Ginne is also serves on the Board of NORTEC. Small Business California has worked closely with NORTEC over the years and know they are a great resource for small businesses in the Redding/Chico . They have a unique philosophy in Job Training. Their philosophy is that if you serve the employer they will provide the jobs.

Congratulations to NORTEC! NORTEC was awarded $3.5M, a 'Green Innovation Challenge' grant, with the emphasis on 'Renewable Energy Generation'. They were one of six to be awarded a grant. The grants that were awarded totaled $19M. This is under California Labor & Workforce Development Agency, News Release No: 10-04.

Secretary Victoria Bradshaw said that she was impressed with NORTEC's application with respect to working with small businesses.One for small business!

About Me

Small Business California is a proactive, non-partisan business advocate whose only agenda is the well being of California’s 3.2 million small businesses. Working for all small businesses for a better business environment, SB-Cal is responsive to the needs of small business owners.
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